A Tale of Two Budget Hotels

2008 it seems is an interesting year for budget hotels.

On the one hand there is Premier Inn which has just been ranked highest in the latest JD Power survey for the Economy Segment 2008, with an "among the best" score in Overall Satisfaction, Reservation, Check-in/Out and Cost. Not only did it out rank the other economy hotels, but it also out-ranked many mid-scale segment hotels including Express by Holiday Inn, Best Western, IBIS and Park Inn.

On the other hand its competitor Travelodge has announcements of a different kind – the fact that it is cutting prices, selling some rooms next year for just £9 and dropping prices by around 10% on average. In fact it sounds like it's trying to change the sector to one more akin to budget airlines.

Premier Inn has so far not been drawn into this price war with no announcement about price cuts. In fact I was at a conference early this year when Gerard Tempest, Marketing Director for Whitbread Hotels & Restaurants was there speaking about loyalty for Premier Inn. He was discussing why Premiere Inn had made a conscious decision not to create a traditional loyalty programme providing points for nights stayed. Instead he discussed that their customer retention programme is based on delighting the customer. By having a consistent level of quality across their rooms, customers know what to expect in every hotel they stop in and so they are not unpleasantly surprised. This is then backed up by great customer service and a money-back guarantee stating that if you don't get a good nights sleep then you'll get your money back.

Through personal experience I have seen first hand how this focus on the customer works. A female colleague of mine noted that if you're a lone female guest then they don't give out your room number verbally so that it can't be over-heard - it's only a little thing but it shows they are thinking all the time about their guests.

Once you've stopped at a Premier Inn they then send you a Guest Satisfaction Survey – on which they have a very high response rate despite its length.

I had reason to try out their customer service a few weeks back when I accidently managed to mis-book a room online – getting the date wrong and so not turning up for the date I'd booked and then having to re-book on the day I needed it when I realised the mistake. By the time I got to the hotel the manager had already made the decision to refund my mistaken no-show. No arguments despite it essentially being my fault – now with service like that who wouldn't recommend them.

It would seem there are two strategies going on here. Travelodge it would appear is hoping to attract customers on a budget – bringing in new customers who may be shifting from a family holiday to a weekend break or business customers downgrading from mid-scale hotels to budget. It would also appear to be working with a 45% increase in bookings for October compared to the same period last year.

Premiere Inn on the other hand is working hard to retain existing customers – providing quality and service for a competitive price. With their Good Night Guarantee they are also looking to reassure customers who may be looking to down-grade from the mid-scale hotels that they will not be compromising on the fundamentals. Premier Inn sales are 18% higher in the first 6 months of 2008/2009 fiscal year than last year so it would seem that their policy is also working.

What will be interesting is how these strategies fair in the longer term – with premium pricing and a focus on the retention of existing customers, Premier Inn may be in a better position as the economy starts to grow again – Travelodge on the other hand may find it hard to increase their prices once customers have become accustomed to them.

Customers Pay the Price for Quality and Service

I had some push back on my article "The customer is always right (unless they’re wrong)" where I commented that I felt price ceased to be a major reason for churn for existing customers. It was pointed out to me that although this may be true to a point, brands still needed to reassure their customers that they were receiving a fair price, even if they wouldn’t really know either way. This is evidenced by brands such as Tesco continuing to provide messages on "value" and comparisons to other retailers.

I was then reading an article on Retail Week by Mark Price, MD of Waitrose with the title "Cash-strapped shoppers might be chasing after value, but they can still appreciate quality". He raised the question that in these challenging times and the sudden need to realign around price, how a brand such as Waitrose, with a tradition of quality for over 100 years can reassure about price (and real value) without losing their quality credentials.

He then went on to outline how Waitrose is meeting this challenge by actually investing in their products rather than cutting back and cutting costs. They have invested in the quality of their own brand lines meaning these now stand up well against other own-brand and branded products. This has then been backed up with advertising saying that if you don't enjoy your Waitrose product they will refund and replace it.

To fight the challenge that consumers will naturally think that a "quality" product is automatically going to be more expensive they have introduced subtle ticketing in-store to communicate that they are the same price.

Most interestingly they are also investing in their staff - an area many businesses actually cut back on in hard times, reducing training and staff numbers. By investing in customer service training they are now seeing a 10 percentage point gap on mystery shopping scores between themselves and their closest competitor.

Mark finished of his article stating that they have improved their quality, value and price perceptions over recent months and are holding on to their customers. Waitrose it would seem are doing a good job of retaining their customers by building on the things that customers value – good quality and service – whilst reminding customers that they are still competitive on price.

I still maintain that price is not the number 1 reason for churn despite what customer research may say - but it would seem all brands in these more trying times need to consistently reassure customers that the price paid is fair for the quality and service delivered.